FRS 102 changes: What’s happening and why it matters

FRS 102 has changed, and for many businesses, it’s already in effect. If your accounting period began on or after 1 January 2026, which means most December 2026 year-ends are already inside the new rules, you’re reporting under the updated standard right now, whether you’ve fully adjusted for it or not.

It’s tempting to file this under “technical accounting update” and move on. But the changes reach further than the notes to your financial statements. They can move your reported profit, change your tax position, and shift the numbers your bank or investors use to judge your business. This is the piece to start with; it sets out what’s changed, why the deadline has effectively already passed, and where the impact really lands.

The big FRS 102 changes and why they matter

What is FRS 102?

On 27 March 2024, the Financial Reporting Council (FRC) issued the most significant amendments to FRS 102 since it was introduced, bringing it much closer in line with IFRS. Those changes took effect for accounting periods beginning on or after 1 January 2026.

What is the IFRS, and why does it matter here?

IFRS is the accounting standard used internationally, mainly by larger and listed companies. The FRC’s goal with the FRS 102 amendments was to close the gap between the two frameworks, so that a UK private company’s accounts give a similar picture, in certain key areas, to what an IFRS-reporting business would show. The two areas where this shows up most are in leases and revenue.

What’s actually changing?

Three changes matter most:

• Lease accounting (aligned with IFRS 16): Almost all leases now come onto the balance sheet. Instead of a simple rental cost in your P&L, you’ll recognise a “right-of-use” asset and a matching lease liability. Depreciation and interest costs will replace the rental cost in your P&L.
• Revenue recognition (aligned with IFRS 15): A new five-step model determines when and how much revenue you recognise, particularly for contracts with multiple obligations, variable pricing, or financing elements.
• Wider changes: Updates to fair value measurement, uncertain tax positions, business combinations, and disclosure requirements, including related party disclosures.

Think of the lease change like the difference between renting a van month to month and taking out a loan to buy one. Economically, you’re using the same vehicle either way, but one shows up as a simple running cost, and the other puts an asset and debt on your balance sheet. FRS 102 now treats most leases the second way.

Area	What is changing?	When does it apply?
Lease accounting	Most lessee leases move onto the balance sheet	Periods beginning on or after 1 January 2026
Revenue recognition	New five-step model for contracts with customers	Periods beginning on or after 1 January 2026
Fair value	New Section 2A with updated guidance	Periods beginning on or after 1 January 2026
Uncertain tax treatments	New guidance introduced	Periods beginning on or after 1 January 2026
Section 1A disclosures	Additional disclosures for small entities	Periods beginning on or after 1 January 2026
Supplier finance	New disclosure requirements	Periods beginning on or after 1 January 2025

There’s no grace period to wait out. The amendments apply to accounting periods starting on or after 1 January 2026,  so if your business has a December year-end, your current financial year is already being measured against the new standard. Even businesses with a later year-end are likely mid-way through transition planning by now, whether or not that planning has actually happened.

This is why it’s worth having the conversation with your auditor or advisor now rather than at year-end sign-off. Retrofitting these changes after the fact is far harder than building them into your reporting as you go.

Where the impact really lands

This isn’t just a bookkeeping exercise. Three areas tend to feel it first:

1. Reported profit and EBITDA – Moving lease costs from a single operating expense into depreciation and interest changes the shape of your P&L, and can shift EBITDA, a figure many businesses are watched on, whether by management, shareholders, or the bank.
2. Tax position – Changes to the timing of revenue recognition and to how leases are treated can affect taxable profits in a given period, and may require closer coordination between your finance team and your tax advisors than in previous years.
3. Lender conversations – If your business reports against covenants tied to EBITDA, gearing, or net debt, these changes can move the numbers your lender is measuring, sometimes enough to trip a covenant that wasn’t close before. It’s worth flagging this to your bank proactively rather than letting them find it in your next set of accounts.

What should businesses do next?

You don’t need to solve this in one sitting, but a few early steps make the transition much smoother:

• Pull together a list of all your leases, including ones that might not have been treated as leases before.
• Review contracts with variable pricing, long-term contracts, multiple deliverables, deposits or upfront payments, or financing components against the new revenue model.
• Talk to your lender early if covenants are linked to EBITDA, gearing, or net debt.
• Loop in your tax advisor alongside your auditor; the accounting and tax impacts don’t always move in step.

For a closer look at how these changes could play out across financial metrics, bonus schemes, and dividend policy, read our detailed breakdown: FRS 102 Changes: 6 Ways They May Impact Your Business.

FRS 102 has changed to bring UK reporting closer to international standards, with new rules on leases and revenue recognition now in effect for periods beginning on or after 1 January 2026. For many businesses, that means the new standard already applies. The changes can move reported profit, affect your tax position, and shift the numbers your lenders rely on, so the earlier you understand where your business is exposed, the more control you have over the transition.

How can AAB help?

Our Office of the CFO brings together audit, tax, business advisory and CFO expertise, rather than answering from one technical angle alone. That means understanding not just what’s changed in the standard, but what it means for your reported profit, tax position, funding conversations and management reporting, from one trusted point of contact, backed by specialists where you need them.

If you’d like to talk through what these changes mean for your business, please don’t hesitate to get in contact with Ian Chapman, Andy Stephen, another member of the Office of the CFO team or your usual AAB contact.